As an economics major, as well as a lawyer who's worked in many different areas of the profession over the past decade and a half, let me take a crack at this one.

"Sticky" wages. Who likes to get their salary cut? Nobody. Historically, most companies (both in and out of the legal profession) will do anything to avoid cutting salaries, even if that means layoffs. That's changed somewhat in recent years, particularly in highly volatile industries like tech and finance, but the legal profession is one of the slowest to change. This leads to:

"Sticky" billing rates.Law firm billing rates only go one of two directions: Up or sideways. They never go down. This is insane from an economics perspective. When demand for something evaporates as a result of, for example, the housing meltdown or the dot-com crash, basic microeconomics principles tell us that the price must drop to restore equilibrium (supply = demand). When prices are sticky, this doesn't happen, so you end up with a gap between supply and demand: Overpriced lawyers sitting around doing nothing, and clients not getting served because they can't afford those rates. Classic "lose-lose" situation.

Limited discounting. Most other industries don't like to cut prices either, in good times or bad. Thing is, if you're Cisco selling routers and switches to corporate clients, and demand plummets with the economy, you can authorize your sales force to offer deeper discounts to the highest-volume customers. In enterprise software and hardware deals, I'm used to seeing discounts as high as 30%, 40%, even 50% on occasion to get/keep the ongoing business of the most desirable customers. That is totally unheard of in the world of business law, where the deepest I've ever seen discounts go is 15-20%. Not nearly enough for the Great Recession. Why is this?

Obsession with prestige and rankings. Lawyers tend to be hyper-competitive personalities. That helps win cases and negotiate tough deals, but it spells trouble when it leads to irrational decisions. The top large business law firms ("Am Law 100" or "NLJ 250") are perennially obsessed with their respective positions in the pecking order, including the most common metrics (profits per partner, revenue per lawyer, year-over-year growth), as well as qualitative factors (hiring the "best" law school graduates, recruiting the most famous partners). How do they do this?

Money is viewed as a proxy for prestige. A handful of century-old "white shoe" firms in New York, Boston and DC used to dominate the business law world, but that changed radically in the postwar years as aggressive, entrepreneurial upstarts (often Jewish graduates of top law schools who were marginalized by anti-Semitism at the old firms) started grabbing market share and ultimately became some of the most profitable practices around. Regional firms from other cities also entered the fray, rebranding as "national" firms. How to recruit the most renowned, rainmaking partners? Make your firm as profitable as possible to attract them. How to hire the very best associates? Pay the highest starting salary.

Associate salaries are not an efficient, free market. The top tier of large law firms is an oligopoly within each regional market. For many years leading up to 1996, when I graduated law school, all of the large New York firms payed exactly $83,000 starting salary, all of the LA firms paid $70,000, and so forth. One of a handful of the largest firms would decide when the time finally came to raise associate salaries (often Cravath or Skadden in New York), and once the new figure was announced, every other firm that wanted to be considered "top-tier" would move swiftly to match. As the most profitable legal market in the country, New York led these changes for decades, until...

The dot-com boom changed everything. There was a severe shortage of corporate lawyers in Silicon Valley in the late 1990s as the amount of deal work exploded, with record IPO, M&A and VC activity, as well as every other type of deal you can imagine. At the same time, the cost of living in the Bay Area was spiraling upward. To compound the situation, there was an exodus of lawyers (including myself) from top-tier law firms to grab in-house opportunities at Internet companies, lured by potential stock option riches as well as other factors. Firms in SF/SV, as well as LA and other markets outside NY, decided they needed to increase associate pay.